“Dream Golf” Required Huge Risks by Private Entrepreneur

In his Oregonian column last week, “Bandon Dunes and the inequities in the local tax burden,” Steve Duin criticizes Chicago entrepreneur Michael Keiser, developer of the Bandon Dunes golf resort, for taking advantage of alleged tax breaks such as low property tax rates. But he presents zero evidence that Mr. Keiser sought any of them. Differential tax rates are ubiquitous in the economy, thanks to legislators who love to pick winners and losers; there is no point blaming individual investors who take advantage of them.

More importantly, Mr. Duin fails to mention the many barriers Mr. Keiser faced in bringing his far-fetched dream of Scottish-style golf to the Oregon coast, as recounted by Stephen Goodwin in his fascinating book, Dream Golf: The Making of Bandon Dunes. The 1,215 acres Mr. Keiser purchased in 1991 had been owned for decades by other investors who had not been able to get land-use approval for any type of project. The land was essentially worthless, and therefore county residents derived no employment opportunities and local governments received very little in property tax revenue.

Mr. Keiser paid $2.4 million for the land, with the mere hope that he could get the necessary permits from 10 state agencies, Coos County, and the federal government, while also negotiating with the Coquille and Coos Indian Tribes. It took five years before the project was approved, and Bandon Dunes agreed to maintain roughly half the property in its natural state — foregoing all future revenue from that asset.

Ultimately, the first golf course wound up costing more than $20 million, and Mr. Keiser had no guarantee that anyone would ever play. Now it’s a world-class attraction, and more than 500 local residents are employed there. The total taxes paid by the resort far exceed the minimal state services offered in return.

Wealthy individuals can and do invest capital all over the world. I don’t think it’s a “problem” when they choose to invest some of it in Oregon.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research center. Note: In December 2009 Cascade Policy Institute received an unrestricted gift from the Mr. and Mrs. Michael L. Keiser Fund of the Oregon Community Foundation; the amount of the donation equaled 0.49% of Cascade’s total income for the year.

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  • Britt Storkson

    The problem here is not “tax breaks”. The problem is that different people are being treated differently when it comes to what they pay in taxes.

    If we’re going to have any law or a tax it needs to be enforced/applied uniformly, not selectively. There is ample precedent for this. It’s called the 14th amendment…Also called the Equal Protection clause. It was ratified in 1868 after the civil war when former slave states began enforcing the laws differently on blacks and other minorities than they did on whites.

    What if we had a law that stated for a speeding ticket if you’re white you paid a $50 fine and if you are a minority you pay a $500 fine? There would be outrage and rightfully so. Yet we do the very same thing when it comes to imposing taxes. Everybody pays a different tax rate depending on who you are.

    One of the reasons we have such high taxes is because about 1/2 of the voters DON’T PAY THEM! Yet, as the vote on measures 66 and 67 clearly demonstrated, they are more than happy to vote higher taxes on someone else.

    Britt Storkson
    http://www.storksonchangeforthebetter.com

  • eagle eye

    It is a beautiful golf course, world class.

    It would also have made a beautiful state park, if Oregonians had had the wit to add it to our small inventory of parks.

    • Snkbyt

      State parks are closing down…No money to fund them. The parks user fees don’t even cover the cost of cleaning the toilet facilities. At least a little tax revenue is better than it was with no land use permits. If you make all these park….better start charging more user fees.

      • eagle eye

        It’s really too bad that Oregon can’t even operate its small state parks system! I am well aware of the problems you refer to. In Lane County, the same is true of the county parks, in spades.

        You know what, Oregon not only has a small state parks system, it is also deficient in national parks and wilderness areas. Compare it to most of the other western states, including our neighbors to the north and south.

        Oregon likes to think of itself as environmentally aware and active, but actually, it’s fallen far behind. We have — what — the ancient bottle bill, and the dysfunctional land use system (which neither protects natural areas very well nor respects property rights very well).

        I don’t blame Keizer, he saw the value in this coastal land and followed his vision, to create a world-class golf course congruent with the land it lies on. He bought the land for a song, it could easily have been added to the parks system if anyone in Oregon had cared.

        He acted in contrast to Oregonians, who had the vision neither to see the opportunities for a park, nor the possibilities for the golf course — it’s impossible to imagine Oregon businessmen accomplishing what Keizer did.

  • Bad Boy George

    Duin’s STUPID criticism is typical of this LAKE OSWEGO LIBERAL who has never done anything except post his economic illiteracy in the Oregonian for years on end. One has to wonder why the publisher of the Oregonian keeps this failed ex-sports writer on the payroll unless he has something on management that would result in criminal charges being filed.
    Duin is the typical paycheck earner who has no clue what is required to run a business; much less operate one at a profit or develop a business from scratch. If the Oregonian dropped him tomorrow noone would miss the idiot.

  • valley p

    I’m not familiar with the whole story or the tax breaks offered and accepted, and I gave up golf decades ago (stupid way to spoil a good walk,) but clearly the development of that property, which had been solid gorse (an invasive species) before they started, has been a net positive.

    Nothing wrong with targeted tax breaks to spur development that is believed to be for the greater good, but there ought to be a time limit. Assuming the business relies on local services, it ought to be paying for them.

    • Britt Storkson

      Define “the greater good”. Most of the time tax breaks ultimately benefit the well-to-do at the expense of the working class. What’s wrong with everyone paying the same tax rate?

      • valley p

        If a temporary tax break results in private investment that produces new wealth within a community, and if the amount of new wealth generated is greater than the cost of the tax break, then that is a “greater good.”

        I don’t know if “most of the time” tax breaks work out in favor of the wealthy or working class. I don’t have an up to date scorecard. I’ve seen projects that seem to have worked out well and others that did not. From a distance, Bandon Dunes seems to have helped that community more than it has hurt. As a pragmatic person, I like to deal in specifics over generalities.

        • Britt Storkson

          Please tell us how those “targeted tax breaks” benefit you personally.

          • valley p

            I have no idea what you mean. I don’t live in Bandon and haven’t done any work there. I was talking about generalities. If a community has a health economy, that tends to benefit everyone to some extent no?

          • Britt Storkson

            Cite for me one example of where “targeted tax breaks” benefited everyone. Reducing taxes for one or more privileged individuals does not reduce the amount of taxes collected by government. In fact taxes go up on the others to make up this “shortfall”.

          • Dave

            So Bandon Dunes was “targeted” for a tax break. They eventually brought in 500 jobs and boosted a failing economy. Those 500 people all paid and continue to pay taxes and spend their income. It’s a gamble, the benifit is bigger than the cost in this instance. I agree that it doesn’t always happen that way. Example, Dell Computer call center in Roseburg. As soon as they initial tax break dryed up, Dell hit the road. I think the point of the article is that in the case of Bandon Dunes, targeted tax breaks worked.

    • Scribbler

      I live and work here on the south coast (if you are from anywhere north of Cottage Grove, rest assured that the coast ends at Florence, and stop reading here) and I can assure you that the area between Bandon and Coos Bay isn’t all gorse. It is also choked with the Scotch Broom the state brought in years back, as well as invasive European bunch grasses which the BLM planted a generation back (I guess they thought the Oregon Dunes were all icky and stuff). Ok, we’ve also got some scrub alder, manzanita, and various pines in the area.

      But as I say, if you live north of Cottage Grove, we do not exist. The Oregon coast ends at Florence, understand? There’s nothing to see here. Move along.

  • Bob Clark

    Duin is one of the reasons I cut back on buying the Oregonian. The other is when their one conservative columnist retired leaving the paper even more left sided.

    • Britt Storkson

      What conservative columnist?

  • Rupert in Springfield

    There is something truly hilarious about all the invasive species talk.

    Can we please remember that no small amount of invasive species nonsense was brought to you courtesy of the government? Either through direct planting or the encouragement of it?

    Ok, so now that that is established, can we please concentrate a little on the idiocy thinking the government is competent to pick winners and losers, through targeted tax breaks, when we have already acknowledged its incompetency at picking shrubbery?

    The nonsense of trusting the government to target wealth through selective tax breaks, while a the same time bemoaning a gorse plant or scotch broom is truly staggering.

    And yes, the fact that I am saying the government is incompetent at picking shrubbery is to be equated with calling the BO administration Nazi’s.

    • Scribbler

      “Can we please remember…” ? Really? Did you actually read what I wrote???

      Grief, what are they teaching in the schools these days? It would seem Mssrs. Dewey et Wilson’s industrial model of education has failed to impart the finer bits of actually reading what another fellow wrote before suggesting his deficiency by presenting as new an argument he actually, and clearly made.

      • Rupert in Springfield

        Well, if you want to point out where you wrote of the ludicrous idea of suggesting a government that is incompetent to pick shrubbery should be trusted with picking winners and losers in the market I would be glad to apologize for my redundancy.

        Since I don’t think anyone here made that point prior to my assertion of it I think you are frankly just full of hot air.

        Oh, and please Dean, don’t waste everyone’s time saying you didn’t write this. No one is so self focused as you as to mistake a general comment as a reply to him. No one is as insecure as you as to have to prattle on in the way you do in this post.

    • valley p

      “Can we please remember that no small amount of invasive species nonsense was brought to you courtesy of the government? ”

      There was a time when “the government” introduced a number of plant or animal species into environments absent scientific research to determine possible effects. And we still live with those mistakes, including reed canarygrass and European beach grass. But the vast majority of invasive species introductions have been courtesy of the private sector, sometimes deliberate, but most often by accident as a consequence of expanding trade.

      And the only entity that is out there inspecting and regulating and fighting against old and potentially new introductions that could cost us bazillions if they get a toe hold, is the dreaded government. Ask any farmer or forest land owner.

      Sorry Rupert, but this is one arena where the private sector needs to saved from itself by the government.

      • Rupert in Springfield

        Nice diversion, but no one was arguing about the propriety of government dealing with invasive species.

        Sorry Dean, arguing something that was not in contention is a little silly.

        • valley

          You stated that the government is “incompetant to pick shrubbery” and used that to segue into government not being trustworthy on other, unrelated matters. Calling the government incompetent on “shrubbery”was not meant to imply it can’t deal with invasive species? Whatever.

          Lets go to your key point. Or maybe not your key point, since you will probably deny this as well.

          Since the government of today has much greater competence than the private sector when it comes to picking the right shrubbery (and I can easily demonstrate this for you if you would like,) your conclusion is logically flawed. Using Rupert logic, the government must be MORE competent to pick winners and losers in the market than is the private sector.

          • Scribbler

            Certainly the government is able to deal with invasive species. The BLM undertook a program of sand dune ‘stabilization’ by planting grass in the Oregon Dunes only a couple of decades ago, and now the Dunes are dying as the unique landscape which once graced our area.

            They are so capable that everything they turn their hand to is cheapened, corrupted, and ossified. And that is precisely the intention of the government agencies which have been waging an undeclared war on the west over the past forty years.

            They are very capable indeed.

          • valley p

            The first documented stabilization of Oregon sand dunes with European beach grass was in the 1890s, and it was a private entity, the ON&R railroad. Their work was up near Seaside. In the early 20th century the US Forest Service planted about 47 acres with beach grass in Coos County. In 1935 the Soil Conservation Service (a Roosevelt creation) started extensive plantings of beachgrass on the north Oregon coast, near Warrenton. Local residents asked for these plantings to be extended, and the government complied, eventually making beachfront property development possible, and protecting a lot of public facilities, like roads, along the way.

            By the 1950s, the success of the SCS efforts on the north coast were extended all the way down the coast. BLM may have planted a few areas, but it was the SCS that developed the method, and the becahgrass has also spread on its own. The system worked too well unfortunately. It changed the foredune ecosystem. You call this “waging war on the west?” Whatever.

  • John A. Charles Jr.

    To get back to the central point, Duin’s column was based on a book published last year by a former NY Times writer who complained about so-called “subsidies to the rich.” In the specific case of Bandon Dunes, he talked about lottery-funded expansions to the North Bend airport, corporate tax write-offs for wealthy individuals flying jets into that airport, and low property tax rates for Bandon Dunes.

    But if one reads how the golf course came into being, in the book, “Dream Golf: The Making of Bandon Dunes”, it’s clear that Mr. Keiser never thought about those things. He was just trying to find the right property to build his dream golf course, and the idea of doing it in Oregon (where the default answer from most planners is always “NO” to any kind of resort) was borderline insane. That’s why he was the sole investor: no one else was crazy enough to put up their own money.

    As to the “subsidy” issue, my answer would be: (1) there is no reason for a corporate income tax in the first place, so if we repealed it there would be no “tax breaks” for corporate jet users; (2) airport expansions should be financed out of user fees; there is no need for Oregon Lottery pork, and in fact there is no reason for the state of Oregon to be in the gambling business at all; and (3) let’s make all the property tax rates as low as those on Bandon Dunes.

    Lower tax rates and less government pork will lead to greater private sector investment. That would solve a lot of Oregon’s economic problems.

    John Charles

  • David Cay Johnston

    The Steve Duin column cited here was prompted by my analysis of Coos County property tax burdens, drawing on a report by Adam Colby, the county assessor.

    Much of the debate here misses the point.

    If an investment requires subsidies then is it market capitalism? When an investment is profitable, as Bandon Dunes is, why would we subsidize it with our tax dollars? (And why would we subsidize a losing private investment?)

    Mike Keiser, whose success as a fellow businessman and whose vision for his 18th Century style golf course I admire, was NOT looking for a subsidy, as I reported first in The New York Times in 2007 and later in my bestselling book on hidden subsidies, FREE LUNCH, which opens with the story of Bandon Dunes.

    Keiser is perfectly aware that he gets subsidies and says so eloquently and forthrightly in the video a colleague and I made for The New York Times about the economics of Bandon Dunes. The six-minute video is free at:
    http://video.nytimes.com/video/2007/05/29/business/1194817116143/who-pays-to-play-.html

    A subsidy means others are paying taxes that go to someone else, rather than to public services like police protection and education, or that they get fewer services for their taxes to finance the subsidy.

    My bestselling book FREE LUNCH cites Adam Smith, whose book on market capitalism has been in print since 1776, on how subsidies damage the overall economy, among other classic sources. America today is so awash in subsidies for corporations that we have forgotten time-tested, classic thinking about subsidies and their economic impact.

    The jet subsidy is also not as simple as John A. Charles Jr. suggests.

    There is NO issue with people like Keiser (or two of my neighbors) who own or lease a jet and bear the cost of it themselves, including the normal tax deductions for business use.

    The jet subsidy at issue is the personal use of corporate jets by executives of publicly traded companies, who fly free and force shareholders to pick up the hidden expense. The executive only pays income taxes on the value of the flight. If they paid taxes on the full cost of the flight there would be no issue, but they do not.

    That value is set so low that a long flight which costs $100,000 all-in will cost the executive about a thousand dollars in higher income taxes. Some companies actually reimburse executives for this and then gross-up the executive’s pay to cover the tax on the tax.

    Keiser calculated the subsidy at about half of his full-time, all-in payroll in 2007. I calculate it at the full payroll because I counted all of the hidden features of the subsidy, including positioning flights. The calculations come from published IRS rules, the number of flights to Coos County and then estimates of the average size of the jet and length of the flights.

    By either measure, this is a major taxpayer contribution to Keiser’s return on his investment. The subsidy for sure benefits Coos County, but when looked at from a national perspective it is a drag on the American economy, as are most subsidies that benefit specific businesses. These subsidies are massive and growing.

    Bandon Dunes is significant because, due to its remote location and records of flights at the airport, the subsidies can be measured and not lost in the myriad of subsidies to many companies, as would be the case were the golf courses located in metro Portland.

    Senators Bob Packwood of Oregon and Bob Dole of Kansas were behind this subsidy, which was hidden in a 1985 bill to provide relief from paperwork for middle class taxpayers who use a company car. Technically, the subsidy is not even in the law, but only in a directive to the IRS that accompanied the bill. But that is how tax favors and subsidies get done — in secret and by stealth, which is inimical to a free people.

    The debate on the Senate floor, which went unreported in the news at the time, is recounted in Free Lunch. It is a good example of the hard facts about tax policy and corporate subsidies bear little relationship to what most people assume about taxes and subsidies because they do not know the facts.

    Even if we eliminated the corporate income tax, free use of corporate jets by executives would impose costs on shareholders that few understand.

    Just repealing the corporate income tax is not simple, either. Pure repeal would be a huge redistribution of wealth and income. Without strict rules, it would make a personal income tax virtually unenforceable except on wage earners, violating basic time-tested principles of tax.

    I now teach tax law to graduate business and law students at Syracuse University (and am the columnist for the nonprofit journal Tax Notes) so I study these issues deeply. My reporting for The New York Times has resulted in Congress enacting a number of tax laws and rules and has even affected Oregon state tax law, points I cite to make clear that others recognize the value of my knowledge on these subtle and complex issues. I was also awarded the Pulitzer Prize for my coverage of taxes.

    The hard truth is that the way our tax system actually works bears little relationship to what politicians and pundits say and, thus, to what most Americans believe. That is the reason I wrote the books PERFECTLY LEGAL and FREE LUNCH — to help people understand how the tax and subsidy systems actually work.

    Lowering the property taxes for all to the rate Bandon Dunes pays, as John A. Charles Jr. suggests, would reduce the local component of school funding, police, libraries and other public services on which wealth creation depends by 80 percent. That is because the Bandon Dunes effective property tax rate of 0.29 percent is just one-fifth that of all Coos County property taxes excluding the ten largest property taxpayers, seven of whom pay below average rates. That rate is 1.41%.

    How are you going to educate the next generation with 80 percent less property tax revenue? Or do you think this is the end of history and we do not need to invest in the future, as we do when we instill knowledge in young minds.

    The argument made by Mr. Charles — that subsidies are ok because the investor took big risks — is an argument for upward wealth redistribution, not competitive markets.

    In the case of the Bandon Dunes, the questions should be what rationale exists for taxpayers to subsidize a profitable enterprise? And what is the all-in cost of the subsidies in terms of losses to others who must bear heavier burdens to pay for these subsidies? Those questions are central because there is no free lunch.

    • Bill Sizemore

      David Cay Johnston may address the following issue elsewhere in his writings: The fact that higher income earners contribute such a disproportionately high percentage of total income tax revenue compared to lower income persons creates a political environment where a solid majority of voters can support with impunity higher taxes and the politcians who espouse such policies, because they know they will not personally have to pay those higher taxes. The result of such so-called progressive taxation will always be increasingly high tax rates as lower income voters incrementally redistribute income from the wealthy to themselves. A sophisticated loophole system has historically been the way wealthy people have shielded some of their income from those who would wage class warfare on them and their businesses.

      The reality of property tax subsidies is this: If businesses will not invest in a state or locale because of high property tax rates, that is a pretty clear indicator that the tax rates are too high and if they are too high for a new business they are arguably too high for the ones already there and trying to compete with business elsewhere that are not subject to the high rates.

      The thing that complicates this entire issue for Oregon is a tax system that is so centered on the state income tax. Local politicians give property tax breaks to a new business to lure to the area. The business creates jobs and the employees pay income taxes on the money they make. However, they do not pay any of that income tax to the local government that handed out the tax breaks that lured their employer to town. On other words, the local government spurred the local economy, but didn’t get to reap any of the rewards. (They could with a sales tax, but Oregon doesn’t have a sales tax).

      It is hard to blame a local government for giving tax breaks to an outside entity that will locate there and create jobs, but I fear that this is done more as a legacy for the local politicians than for the long term good of the community.

  • David Cay Johnston

    P.S. Mike Keiser did seek property tax breaks. The story of just how that was done would be a good one for Mr. Charles to dig into since he raised the issue.

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